SUP 1A.3 The FCA's approach to supervision

Purpose

The FCA will
adopt a pre-emptive approach which will be based on making forward-looking
judgments about firms' business
models, product strategy and how they run their businesses, to enable the FCA to identify and intervene earlier to
prevent problems crystallising. The FCA's approach
to supervising firms will contribute
to its delivery against its objective to protect and enhance the integrity
of the UK financial system (as
set out in the Act). Where the FCA has responsibilities for prudential
supervision, its focus will be on reducing the impact on customers and the
integrity of the financial system of firms failing
or being under financial strain. In addition, when consumer detriment
does actually occur, the FCA will
robustly seek redress for consumers.
This approach will be delivered through a risk-based and proportionate supervisory
approach.

The scope of the supervision
model for firms

The FCA supervision
model risk assessment process applies to all firms,
although the detail required may vary from firm to firm. For example, some firms may
experience a highly intensive level of contact although others may only be
contacted once every four years. Firms judged
as high impact are likely to require a more detailed assessment. A peer review
process within the FCA assists
consistency and will be focused on firms and
sectors of the industry that could cause, or are causing, consumers harm
or threaten market integrity.

In order to create incentives for firms to raise standards and to maximise
the success of the FCA's supervisory
arrangements, it is important that a firm understands
the FCA's evaluation of its
risk so that it can take appropriate action.

The FCA intends
to communicate the outcomes of its pillars of supervision to each firm within an appropriate time frame. In
the case of firms in which risks
have been identified which could have a material bearing on the FCA meeting its statutory
objectives, the FCA will
also outline a remedial programme intended to address these.

(2)

The FCA considers
that it would generally be inappropriate for a firm to
disclose its FCA risk assessment
to third parties, except to those who have a need or right to be aware of
it, for example external auditors. FCA risk
assessments are directed towards a specific purpose - namely illustration
of the risks posed by a firm to
the FCA'sstatutory
objectives and to enable the FCA to
allocate its resources accordingly. Using a risk assessment for any other
purpose has the potential to be misleading. The FCA therefore
discourages firms from disclosing
their assessments, unless they are required to make them public under relevant
disclosure obligations.

The nature of the FCA's
relationship with firms

As many firms will
not have dedicated, fixed portfolio resource, the first point of contact for
many issues for such firms will
be handled by the FCA's Contact
Centre, with the aim being that fewer issues and queries will need to be referred
to the supervisors. To support all firms the FCA will also provide regional workshops
and road shows to clarify its expectations on these risks and issues that
are particularly important to the FCA.

The nature of the FCA's
relationship with the PRA

While respecting each regulator's
different statutory objectives and
mandates, in undertaking its supervisory activity the FCA will
co-ordinate and co-operate with the PRA as
required and necessary in the interests of the effective and efficient supervision
of regulated firms and individuals.
Both regulators will coordinate with each other as required under the Act, including on the exchange of information
relevant to each regulator's individual objectives. However, the FCA and PRA will
act independently from one another when engaging with firms,
reflecting an independent but co-ordinated regulatory approach. Maintaining
effective working relationships with the PRA will
be vital to achieving the FCA vision.
To this end, and as required under the Act,
the FCA will maintain a memorandum
of understanding with the PRA which
will set out how the two organisations will work together.